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Thursday, May 04, 2017

Stocks Flat as Oil Touches Five-Month Low

Charles Schwab: On the Market

Posted: 5/4/2017 4:15 PM ET

Stocks Flat as Oil Touches Five-Month Low

U.S. stocks finished mostly flat with energy issues leading the
decliners as crude oil prices fell to a five month low, while Facebook,
Tesla and Viacom were under pressure following earnings reports. Health
care stocks finished higher as the House of Representatives passed the
GOP health bill aimed at repealing and replacing the Affordable Care
Act. Treasury yields were higher and the U.S. dollar was lower amid some
mixed economic data and ahead of tomorrow's key labor report. Gold
traded lower.

The Dow Jones Industrial Average (DJIA) declined 6 points to 20,951, the
S&P 500 Index added 1 point (0.1%) to 2,390, and the Nasdaq
Composite ticked 3 points higher to 6,075. In heavy volume, 1.0 billion
shares were traded on the NYSE and 2.1 billion shares changed hands on
the Nasdaq. WTI crude oil dropped $2.30 to $45.52 per barrel and
wholesale gasoline fell $0.05 to $1.48 per gallon. Elsewhere, the
Bloomberg gold spot price lost $9.61 to $1,228.56 per ounce, and the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—was 0.5% lower at 98.74.

Facebook Inc.
(FB $151) reported Q1 earnings-per-share (EPS) of $1.04, or $1.30
ex-items, versus the $1.12 FactSet estimate, as revenues grew 49.0%
year-over-year (y/y) to $8.0 billion, above the projected $7.8 billion.
The social network's monthly and daily active users modestly topped
expectations. However, shares were under pressure as the company warned
about slowing ad revenue growth for the year.

Tesla Inc.
(TSLA $295) posted a Q1 loss of $2.04 per share, or a loss of $1.33 per
share ex-items, compared to the shortfall of $0.82 that was projected,
as revenues rose 18.0% quarter-over-quarter (q/q) to $2.7 billion, above
the forecasted $2.6 billion. TSLA maintained its first-half outlook for
vehicle deliveries and said its Model 3 is on track for initial
production in July. Shares were solidly lower.

Kraft Heinz Co.
(KHC $90) announced Q1 EPS of $0.73, or $0.84 ex-items, versus the
forecasted $0.86, as revenues declined 3.1% y/y to $6.4 billion,
compared to the expected $6.5 billion. The company noted a slow start to
the year, with lower y/y consumption in North America being offset by
significant gains from cost savings. Shares traded higher.

Oracle Corp. (ORCL $45) advanced after announcing a strategic agreement with AT&T Inc.
(T $38), which will move thousands of its large scale internal
databases to Oracle's Cloud Infrastructure as a Service (IaaS) and
Platform as a Service (PaaS). T lost ground.

Trade deficit dips, productivity and jobless claims drop

The trade balance (chart)
showed that the deficit came in at $43.7 billion in March, compared to
the Bloomberg estimate of $44.5 billion. February's deficit was revised
higher to $43.8 billion. Exports dipped 0.9% month-over-month (m/m) to
$191.0 billion, while imports declined 0.7% to $234.7 billion.

Preliminary Q1 nonfarm productivity (chart)
fell 0.6% on an annualized basis, versus expectations of a 0.1% dip,
following the upwardly revised 1.8% increase seen in Q4. Also, unit labor costs increased 3.0%, versus the forecast calling for a 2.7% gain. Unit labor costs were revised lower to a rise of 1.3% in Q4.

Weekly initial jobless claims (chart)
fell by 19,000 to 238,000 last week, below forecasts of 248,000, with
the prior week’s figure unrevised at 257,000. The four-week moving
average rose by 750 to 243,000, while continuing claims dropped by
23,000 to 1,964,000, south of estimates of 1,990,000.

Tomorrow, the economic calendar will culminate with the release of the April nonfarm payroll report, projected to show employment grew by 190,000 jobs, rebounding from the prior month's disappointing 98,000 gain. Private sector payrolls are forecasted to increase by 188,000 jobs, following March's 89,000 rise. The unemployment rate is expected to tick higher to 4.6% from 4.5% and average hourly earnings
are anticipated to rise 0.3% m/m and be 2.7% higher y/y. Average hourly
earnings could post a fifth-straight monthly gain and the figure is
likely to garner scrutiny, given its impact on the consumer, which
drives the majority of economic growth, and amid the backdrop of recent
soft readings on inflation.

As noted in the latest Schwab Market Perspective: Should Sharp Sentiment Shifts Mean a Change in Strategy?,
we don't believe that trend growth is as low as the 0.7% real gross
domestic product (GDP) print posted for this year's first quarter, but
neither do we believe the economy has accelerated markedly. We continue
to believe the bull market will continue due to decent economic growth
and a good profits picture, but there will likely be sentiment-driven
dips and surges to come. Schwab's Director of Market and Sector
Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Is Retail Really Dead?,
the American consumer remains relatively healthy in our view, with
increasing wages, low unemployment and high confidence. Read more on the
Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Treasuries traded lower, with the yield on the 2-year note rising 1
basis point (bp) to 1.31%, while the yields on the 10-year note and the
30-year bond advanced 3 bps to 2.35% and 2.99%, respectively. Bond
yields finished mixed yesterday after the widely expected unchanged
monetary policy stance from the Federal Open Market Committee (FOMC),
which noted that "the slowing in growth during the first quarter is
likely to be transitory," and that "near-term risks to the economic
outlook appear roughly balanced." In their unanimous decision, the
Committee provided little direction of any change to its current outlook
for future rate increases, which beforehand showed that members have
penciled-in two additional rate hikes this year.

Also, consumer credit will be released tomorrow afternoon to round out
the economic docket for the week. Economists are forecasting that
consumer borrowing expanded by $14.0 billion in March after increasing
by $15.2 billion in February.

Europe higher on data, Asia mixed following Fed decision

European equities finished higher, with financials rising following some
solid earnings results. The markets digested the unchanged monetary
policy stance in the U.S. yesterday. Moreover, French political concerns
remained subdued following yesterday's Presidential debate, after which
polls suggested mainstream candidate Emmanuel Macron is poised to
defeat anti-EU Marine Le Pen in the final vote this weekend. Meanwhile,
U.K. Brexit negotiations continued as the nation heads for a June vote,
while a German election looms. For analysis of the political uncertainty
on both sides of the pond, see Schwab's Jeffrey Kleintop's, CFA, and
Vice President of Trading and Derivatives Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. Eurozone
and U.K. business activity showed growth accelerated in April, and
eurozone retail sales rose slightly more than expected. The euro and
British pound moved higher versus the U.S. dollar and bond yields in the
region traded mixed.

Stocks in Asia finished mixed on the heels of the highly-expected
unchanged monetary policy decision in the U.S., while basic materials
continued to slide. Geopolitical and political uncertainty lingered,
while volume continued to be lighter than usual as markets in Japan
remained closed for a holiday. Australian securities declined, with
weakness in financials continuing following recent earnings reports in
the banking sector, while the drop in basic materials also weighed on
the markets. Chinese shares decreased amid lingering economic concerns
in the wake of soft manufacturing and services sector reports as of
late, along with festering regulatory crackdown concerns. However,
stocks in India rose on strength in the financial sector following
reports of new rules for the banking sector, while South Korean equities
also gained ground after returning to action following yesterday's
holiday break. For analysis of the global landscape, see Schwab's
Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

Tomorrow the international economic calendar will be light, offering
construction data from Australia and retail PMI reads from Germany,
France, Italy and the Eurozone. Meanwhile, in central bank action, the
Reserve Bank of Australia will release its monetary policy statement.

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